Varney Revives False Claim That Cutting Taxes Increases Revenue

On Fox & Friends, Fox Business host Stuart Varney revived the false claim that "history shows that you get more money to the Treasury by lowering tax rates than by raising tax rates." In fact, virtually no economist believes the evidence supports the claim that tax cuts result in increased federal revenues.

Varney: "History Shows" That Cutting Taxes Will "Get More Money To The Treasury"

Varney: "History Shows That You Get More Money To The Treasury By Lowering Tax Rates Than By Raising Tax Rates." From the June 17 edition of Fox News' Fox & Friends:

VARNEY: When you tax at 70 percent - if you go back to the Carter years, so that people who are supposedly wealthy lose 70 cents on every dollar they make above a certain level -- you do that and, you actually take in less money in total taxes than if you have the rate all the way down at 35 percent, where it is now.

In other words, the academic left, like Robert Reich, they want to get back to the Carter years -- very high tax rates on the rich -- because they want to -- they think they are going to pull in a ton of money to pay for Medicare and Medicaid and social services. They are wrong. History shows that you get more money to the Treasury by lowering tax rates than by raising tax rates.

GRETCHEN CARLSON (co-host): How? I mean, because on its face, you would think, well, how does that happen?

VARNEY: Because lower tax rates -- the money comes out of the woodwork. The rich stop hiding it all over the place; they stop sending it overseas. They're quite prepared to pay 28 percent or 30 percent or whatever it is. They're prepared to pay that low rate. And that stimulates the economy, so the economy grows, and tax revenues grow as the economy grows. That's the basic math here. [Fox News, Fox & Friends, 6/17/11[1]]

If there's one thing that Republican politicians agree on, it's that slashing taxes brings the government more money. "You cut taxes, and the tax revenues increase," President Bush said in a speech last year. Keeping taxes low, Vice President Dick Cheney explained in a recent interview, "does produce more revenue for the Federal Government." Presidential candidate John McCain declared in March that "tax cuts ... as we all know, increase revenues." His rival Rudy Giuliani couldn't agree more. "I know that reducing taxes produces more revenues," he intones in a new TV ad.

If there's one thing that economists agree on, it's that these claims are false. We're not talking just ivory-tower lefties. Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to. Harvard professor Greg Mankiw, chairman of Bush's Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues. [Time, 12/6/07[2]]

Bush CEA Chair Mankiw: Claim That Broad-Based Income Tax Cuts Increase Revenue Is Not "Credible." Economist Greg Mankiw, who also served as chair of the Bush Council of Economic Advisers (CEA), wrote on July 2, 2007:

I used the phrase "charlatans and cranks" in the first edition of my principles textbook to describe some of the economic advisers to Ronald Reagan, who told him that broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue. I did not find such a claim credible, based on the available evidence. I never have, and I still don't.

[...]

My other work has remained consistent with this view. In a paper on dynamic scoring, written while I was working at the White House, Matthew Weinzierl and I estimated that a broad-based income tax cut (applying to both capital and labor income) would recoup only about a quarter of the lost revenue through supply-side growth effects. For a cut in capital income taxes, the feedback is larger--about 50 percent--but still well under 100 percent. A chapter on dynamic scoring in the 2004 Economic Report of the President says about the the [sic] same thing. [Greg Mankiw, 7/2/07[3]]

Reagan Economist Feldstein: "It Is Not That You Get More Revenue By Lowering Tax Rates, It Is That You Don't Lose As Much."The New York Times reported on March 26, 2008:

While Mr. Laffer insists that tax revenue will rise when tax rates are cut, other supply-siders are less categorical. Martin Feldstein, a Harvard economist who was the first chairman of President Reagan's Council of Economic Advisers and now supports Senator McCain, estimates that a 10 percent tax cut would in fact reduce tax revenue -- but only by 3 to 5 percent.

"It is not that you get more revenue by lowering tax rates, it is that you don't lose as much," he said. [The New York Times, 3/26/08[4]]

Former Bush Chief Economist To CEA Samwick: "You Know That The Tax Cuts Have Not Fueled Record Revenues." In a January 3, 2007, "New Year's Plea," to "anyone in the [Bush] Administration who may read this blog," Andrew Samwick, an economics professor at Dartmouth College and former chief economist to the CEA during the Bush administration, wrote:

You are smart people. You know that the tax cuts have not fueled record revenues. You know what it takes to establish causality. You know that the first order effect of cutting taxes is to lower tax revenues. We all agree that the ultimate reduction in tax revenues can be less than this first order effect, because lower tax rates encourage greater economic activity and thus expand the tax base. No thoughtful person believes that this possible offset more than compensated for the first effect for these tax cuts. Not a single one. [Andrew Samwick, 1/3/07[5]]

FactCheck.Org: Revenue Would Have Been Higher Without Bush Tax Cuts. FactCheck.org concluded on June 11, 2007, that "it is clear" the Bush tax cuts of 2001 and 2003 "did not 'increase revenues'" as Sen. John McCain had claimed. The post further stated:

The Congressional Budget Office, the Treasury Department, the Joint Committee on Taxation, the White House's Council of Economic Advisers and a former Bush administration economist all say that tax cuts lead to revenues that are lower than they otherwise would have been -- even if they spur some economic growth. [FactCheck.org, 6/11/07[6]]

"Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that," said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute. "It's logically possible" that a tax cut could spur sufficient economic growth to pay for itself, Viard said. "But there's no evidence that these tax cuts would come anywhere close to that." [The Washington Post, 10/17/06[7]]

Krugman: After Reagan's 1981 Tax Cuts, "Revenues Are Permanently Reduced Relative To What They Would Otherwise Have Been." Nobel Prize-winning economist Paul Krugman wrote on July 15, 2010, that "the revenue track under Reagan looks a lot like the track under Bush: a drop in revenues, then a resumption of growth, but no return to the previous trend." He added, "This is exactly what you would expect to see if supply-side economics were just plain wrong: revenues are permanently reduced relative to what they would otherwise have been." [The New York Times, 7/15/10[8]]

Clinton Economist: Reagan Tax Cuts And Bush Tax Cuts "Contributed To Record US Budget Deficits." Harvard economist and former Clinton economic adviser Jeffrey Frankel wrote in September 2008 that cuts in federal income tax rates "reduces revenue ... this was the outcome of the two big experiments of recent decades: the Reagan tax cuts of 1981-83 and the Bush tax cuts of 2001-03, both of which contributed to record US budget deficits." Frankel added that this is "the view of almost all professional economists, including the illustrious economic advisers to Presidents Reagan and Bush." [Frankel, "Snake-Oil Tax Cuts," 9/8/08[9]]

Varney Has Previously Pushed False Claim That Tax Cuts Boost Revenues

Varney: "Historically ... When You Lower Rates On The Rich, You Actually Bring In More Money To The Treasury." On the August 3, 2010, edition of Fox News' Fox & Friends, Varney claimed that tax cuts "bring in more money to the Treasury":

VARNEY: Historically, it shows that when you raise [tax] rates, you actually bring in over the long term less money to the Treasury and the reverse is true as well. When you lower rates on the rich, you actually bring in more money to the treasury. What President Obama is doing, he's playing politics. I hate to say playing politics but this is a political issue. The very core of President Obama's administration is raise taxes on the rich, redistribute the wealth. That's what's -- that's what he's all about on January 1. Not economics. It's politics. [Fox News, Fox & Friends, 8/3/10[10], via Media Matters]